Contract Law: Free Consent: Misrepresentation

 MISREPRESENTATION

An innocent misstatement or false statement is known as misrepresentation. Section 18 of the Indian Contract Act, 1872 defines "misrepresentation" as under: "Misrepresentation" means and includes-

(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;

(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement."

Positive assertion, ie, an explicit statement of fact by a person of that which is not true, though he believes it to be true amounts innocently, ie, without any intention to deceive.

When there is a breach of duty whereby the person making a false statement gains some advantage at the cost of the other party, and the statement though false is made without an intention to dive, it also amounts to misrepresentation. For example, Section 57 Indian Easements Act, 1882 lays down that the grantor of a license is bound to disclose to the licensee any defect, which is likely to be dangerous to the person or property of the licensee, of which the grantor is aware but the licensee is not. Omission to make such disclosure, if it is without any intention to deceive, would amount misrepresentation. There should be a false statement made misrepresentation, if one party, acting innocently, causes another party to make a mistake as to the substance of the thing which is the subject of the agreement, there is said to be misrepresentation.

In case of misrepresentation the person making the statement is innocent, and he makes the statement without any intention to deceive the other party. His statement is false although he himself believes that the same is true. It is known as innocent misrepresentation as against fraud, where the person making a false statement knows that the same is false but makes the same intentionally to deceive the other party and make him enter into an agreement which he would not have done otherwise. For instance, A sells a horse to B which is unsound but A himself does not know about this fact. He tells B that the horse is sound. There is misrepresentation.

Derry v. Peek, (1889) 14 A.C. 337

Noorudeen v. Umairathu Beevi, ALR 1998 Ker. 171

Fraud and Misrepresentation distinguished

1. Both in fraud and misrepresentation the statement is false, but in fraud the false statement is made by a person, who knows that it is false or does not believe in its truth, whereas in misrepresentation the person making the statement believes the same to be true.

2. In fraud, the intention of the person making a false statement is to deceive the other party and induce him to enter into the contract on that basis. There is no such wrongful intention in case of misrepresentation. It has been noted in Derry v. Peek, that when the statement, although false, was made without any intention to deceive, it did not amount to fraud.

3. According to Section 19, when the consent of a party to the contract has been obtained either by fraud or by misrepresentation, the contract is voidable at the option of the party whose consent has been so obtained. In other words, the contractual remedy for both is the same. In case of fraud, however, there is an additional remedy available to the victim of fraud, ie, an action for damages under the law of torts, because fraud is also a tort. No remedy under law of torts is available if it is an innocent misrepresentation.

4. When there is misrepresentation by one party, the contract is voidable at the option of the other party, but no such remedy is available if the party seeking to avoid the contract had the means of discovering the truth with ordinary diligence. However, except in case of fraudulent silence, a person obtaining the consent of the other party by fraud cannot be allowed to say that the other party could consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused have discovered the truth with ordinary diligence. (Exception to Section 19)

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